Should we all get money for free?
In the run up to the 2020 US presidential elections, I took a particular liking to Democratic candidate Andrew Yang. He had a proven track record as both an entrepreneur and as founder of Venture for America, a non-profit that aims to make entrepreneurship an inclusive and accessible career path for more US citizens. He seemed like an intelligent, down to earth person who actually wanted to make life better for normal people. The center of his presidential campaign was the promise of a Freedom Dividend, also known as Universal Basic Income, in which every adult in America would receive $1,000 a month from the government with no strings attached.
The beauty of the concept is that it simplifies the complex bureaucracy of government benefit programmes, replacing it with a simple automated monthly payment. Yang highlighted the potential benefits of Universal Basic Income in enabling people to pursue education, spend quality time with young children, immerse themselves in creative endeavours and pursue less lucrative but socially valuable activities such as volunteering for charity.
On top of that, a big part of his campaign focused on the looming threat to employment posed by AI and robotics. His theory was that intelligent machines are set to soon wipe out entire segments of the job market, from accountants to truck drivers, and so governments must take decisive action to solve that challenge before it becomes a serious social crisis.
Having read his book, The War on Normal People, I was absolutely on board with this thinking. Now here we are a few years down the line with AI advancing at breakneck speed and Yang's thesis seems increasingly relevant. So when my colleague Andy said he'd be interested in me writing a post on Universal Basic Income, I started thinking more seriously… could it actually work?
Money for nothing
I don’t think it’s a mystery why there is a lot of interest in the idea of Universal Basic Income. As inflation continues to erode the financial security of normal people, the idea of being given a safety net of basic income every month is extremely appealing. I mean, who wouldn’t want a steady supply of free money?
However, having just lived through a pandemic in which governments “printed” vast quantities of new money and handed it out in record quantities in the form of grants and furlough payments, I no longer think it's so simple, especially as it was a large contributor to the inflation that we are now all suffering from. So now I wonder, was the idea of Universal Basic Income too good to be true all along?
Let’s take a look at some of the numbers.
Andrew Yang nicknamed himself ‘The Math Guy’ during his election campaign, and while I don't doubt that he's good at maths, I look back in hindsight and realise that his personal branding may have distracted people like me from closely scrutinising his numbers.
Yang proposed the introduction of a 10 percent Value Added Tax (VAT) on goods and services that would generate an additional $800 billion per year in tax revenue. He also suggested that Universal Basic Income would replace $600 billion worth of current government spending on welfare programmes and that its positive social impact would save $200 billion in health care and prison costs. That gives us a whopping $1.6 trillion. So far so good.
There’s just one problem. His own calculation was that the Freedom Dividend would cost $2.8 trillion per year.
He makes up part of this shortfall by predicting that Universal Basic Income would increase consumer spending and therefore boost the economy, leading to further increases in tax revenues totaling $600 billion. However, many people have questioned the validity of this assumption and even if it was correct, it still leaves a shortfall of $600 billion, which is no small sum.
Thinking about the UK, an equivalent Universal Basic Income would be £770 per month or £9240 per year per adult. We have a population of approximately 60 million adults and so the annual cost would be approximately £550 billion. For comparison, the National Health Service, which is desperately under funded, costs around £180 billion per year. Furthermore, we already have a value added tax of 20% here in the UK, so that’s not a new revenue stream that we could tap into. Even if we could, there is a good argument to say that VAT is a regressive tax that hurts the poor because it increases the cost of every day goods and services.
Where could the money come from?
From what I can see, there are five possible ways of funding Universal Basic Income as follows:
Increasing taxes
Cutting government spending
Borrowing money
Printing money
Sharing profits from state enterprises
Of course you could use any combination of these to generate the funds required, but most of them have some serious downsides. Cutting government spending, especially at a point in history when government services are already stretched to their limits, would likely have negative social consequences, which goes against the objectives of Universal Basic Income. Borrowing money is simply an unsustainable model of funding any long term social programme. Printing money would devalue the currency over the long term and create more inflation, which would hurt the poorest in society the most, so that’s also counter productive and unsustainable.
So that leaves us with the options of raising taxes or generating money from state enterprises.
I think that raising taxes to fund social welfare programmes, whether Universal Basic Income or otherwise, could be a good thing, but only if the tax was designed to circulate wealth back down to the most vulnerable members of society. That means taxing the super rich, not the poor and middle classes. The question is, would a government be willing and capable of extracting hundreds of billions of pounds each year from the rich and sustain it over the long term?
Here in the UK, I think the answer is a clear No. The UK is a world leader in supporting tax evasion for the super rich, with its special laws in the City of London, and its network of tax havens such as the Channel Islands, the Cayman Islands, the British Virgin Islands, Bermuda and Hong Kong. The thing about rich people is that they're very good at holding on to their money. The hard truth is that the tax system was not designed by the poor.
So that leaves us with the option of raising money from profitable state enterprises. This could actually be a fantastic way to share wealth across society, with all members of society effectively being shareholders in the state enterprises and receiving their share of the dividends. Sadly, the government here in the UK sold off virtually all of its state enterprises at bargain prices, as I discussed in my recent post about privatisation. That doesn’t mean that this idea couldn’t work, but it would require us to have leaders that we can trust and a government that is neither incompetent nor corrupt. Oh dear!
However good Universal Basic Income might be for society, finding a method of funding it over the long term without negative social side effects seems like a very hard challenge.
Equity and equality
Looking at the enormous costs in the cold light of day, it makes me think that part of the challenge of funding Universal Basic Income is that it’s universal. The concept that everyone gets the same does have a beautiful simplicity to it, but in truth, not everyone has the same needs. My worry is that people like me, who have a good job and don’t currently need it, would get the same level of financial support as vulnerable people who already don’t get enough financial support. I would prefer to get nothing and have more support given to people who need it.
My Grandma told me when she was alive that she used to donate her state pension to Help the Aged (now called Age UK), because she had a private pension and was lucky enough not to need the money. It frustrated her that there was no way to opt out of the state pension when less fortunate pensioners didn’t have enough to live on.
State pensions are a good case study because they are essentially a form a Universal Basic Income for people over a certain age, and governments are struggling to pay for them. When the French government tried to raise the state pension age earlier this year, it led to mass protests. If we can’t even provide satisfactory state pensions to the elderly, can we realistically expect to extend a similar scheme to all adults?
The robots are still coming
Even if the maths doesn’t seem to add up on funding Universal Basic Income, I agree with Andrew Yang that those robots are still coming for our jobs.
Perhaps we should start with the problem rather than the solution. If we do that, we can rephrase the question from “How could we implement universal basic income?” to “How do we survive in a world where the robots do all of the work?”
Suddenly it looks very different. In fact, it looks more like an opportunity than a problem. If the robots do all of the hard, boring work, then surely life will be great. We can all live secure, comfortable lives and spend our time on truly fulfilling pursuits. Businesses that still exist might simply be groups of people harnessing the new technology to solve problems and improve quality of life for citizens. It sounds like utopia.
So why are people worried? I think the reason that people are worrying is not because robots will take our jobs, but because the rich people who own the robots will take the value of that work and not share it with us. We fear that it will transfer even greater wealth upwards to the super rich and leave us with little or nothing. I think this is a legitimate fear. After all, advanced AI systems seem to be centralised in a small number of large private companies such as Microsoft (Open AI), Google, IBM, Tesla and robotics firms like Boston Dynamics, not to mention Chinese companies like Baidu and Alibaba. There's a real risk that they form monopolies, or at least oligopolies, over entire sections of the economy.
The thought of monopolies raises another question. Will we need to nationalise AI? In concept, nationalising AI firms could align well with the idea that I mentioned earlier, in which profits from state owned enterprises could be distributed as dividends for citizens. Perhaps the citizens of the world should all have a stake in the AI and robotics companies.
If only it was that easy. The chances of nationalising the big tech firms seem slim, especially as they're mostly based in the US or China, which doesn't bode well for those of us who live in the other 193 countries of the world. That said, perhaps our governments could invest in AI and robotics firms, just as other countries have invested in the privatised UK rail companies.
Even if they did successfully nationalise or invest in the tech companies that will dominate in the future, it would then raise the question of whether we really want a world where government's centrally control giant AI tech on behalf of the citizens and then hand out money, aka vouchers, to the rest of us. Such a scenario walks a fine line between a being an abundant utopia and an autocratic communist dystopia. It could go either way.
Perhaps the deeper truth is that we are going to need to redesign our society and economy more fundamentally if we are going to successfully navigate the technological revolution that is approaching.
I don’t have the answer to this complex puzzle, but hopefully I’ve at least given some food for thought.
Thanks Tom! There's loads to unpack here so I'll have to do some work for my income before I respond fully. The owners of the agency are complete tyrants so I'll be in trouble otherwise ;)